How mid-tier IT firms have bucked the trend to add headcount

The Indian tech sector has been under the weather due to uncertainty in developed economies, impacting demand and the need to hire tech professionals by software service providers. Job opportunities have been scarce for over a year, transitioning from high attrition rates to layoffs in line with the new market reality. Data indicates a clear trend divergence based on the size of the IT service provider.

Out of the five leading tech companies - TCS, Infosys, Wipro, HCL, and Tech Mahindra - four experienced a decrease in headcount by the year ended on March 31, 2024. While HCL Tech stood out as an exception, collectively these companies saw a workforce reduction of nearly 70,000 employees last year, offsetting the 56,000 employees they hired the year prior.

On the other hand, tier II companies appear to be in a different situation. Seven out of the ten significant mid-tier tech firms - L&T Tech, Persistent Systems, Birlasoft, Tata Elxsi, KPIT, Coforge, Zensar, Happiest Minds, Mphasis, and Sonata - have reported an increase in headcount last year, according to data from TechCircle. Together, they added almost 5,601 employees last year and a total of 16,320 employees over the past two years, balancing out the reduction in the workforce by the larger companies.

"The main reason for the increase in employees at tier 2 IT service firms is the specific market they target. Tier-2 companies focus on local businesses, Indian GCCs, and the Automotive & Engineering industries. They can attract more Indian clients at a lower cost compared to Tier-1 firms. Tier-2 companies can quickly adapt to changes in the local market," said Deepti S, Business Head of Tech Staff Augmentation at Xpheno, a Specialist Staffing company.

She added that despite a slowdown last year, there has been an increase in demand for tech and engineering services in 2024, according to her. Mid-sized firms benefit from partnerships with larger companies and competitive pricing, leading to an expected significant growth in their workforce in the upcoming years.

While the talent and growth velocity of the two tiers cannot be directly compared, the mid-sized firms have shown significant progress with an 11% collective headcount growth over the last 2-3 years, compared to a 1.1% growth in headcount by tier-1 companies during the same period. This growth by mid-sized IT firms in challenging years is noteworthy in the IT services sector, analysts believe.

A Nasscom-BCG report published in October 2023 stated that India is a prominent hub for ER&D outsourcing, with spending of around $44 billion-$45 billion in 2023, expected to reach $130 billion-$170 billion in 2030.

Big guns

HCLTech was the only company among the Big Five to have added employees in both the fourth quarter ended March 31 and the full year FY24. However, collectively, FY24 marks the first time in at least the last five fiscal years that IT services companies have reported an overall decrease in full-year employee additions.

For the full year FY24, TCS’ headcount decreased by 13,249, Infosys’ by 25,994, Wipro added 24,516 fewer employees, and Tech Mahindra saw a drop of 6,945 employees. HCLTech, on the other hand, added about 1,537 employees in FY24, albeit a small number.

In Q4, TCS’ employee addition decreased by 1,759, Infosys’ by 5,423, Wipro’s by 6,180, and Tech Mahindra’s net addition was down by 795. Conversely, HCLTech added 2,725 employees. Analysts attribute this shift to the lack of growth in FY24, prompting companies to focus on improving margins and utilization rates instead.